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What to do about Fannie, Freddie

Marketplace Staff Aug 17, 2010
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What to do about Fannie, Freddie

Marketplace Staff Aug 17, 2010
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TEXT OF INTERVIEW

STEVE CHIOTAKIS: What should the government do with home mortgage backers Fannie Mae and Freddie Mac? Some ideas will come from a meeting today in Washington with Treasury Secretary Timothy Geithner. The government-backed mortgage giants have been bleeding and needing lots of money, and a sour housing market isn’t making the future look any better. Susan Wachter is professor of real estate and finance at the University of Pennsylvania Wharton School of Business. She’s with us live from Philadelphia. Good morning, professor.

SUSAN WACHTER: Good morning.

CHIOTAKIS: Should the government be in the mortgage business in the first place?

WACHTER: Absolutely. The government has to be at least in the business of setting the rules of the game. By the way I’m not in Philadelphia, I’m in Washington about to go into the meeting.

CHIOTAKIS: OK, my apologies there. From Washington. All right, so they should be in the mortgage business setting policy. So what should be done with Fannie and Freddie?

WACHTER: In the short run we need Fannie and Freddie because they are the way the government is supporting the housing market. The housing market could easily go into a double dip, pulling the whole economy down. In the longer run, we need to restructure the entire system and we need to have transparency so that private capital is at risk and the taxpayer is protected.

CHIOTAKIS: And what do you think it’s going to be tossed around at this meeting today, professor?

WACHTER: The role of the government, how deep going forward the role of the government guarantees are going to be and from my perspective what will be key here is a level playing field to regulate all players in this market.

CHIOTAKIS: You know, one of the ideas that’s being tossed around is to lower the size of a mortgage that Fannie or Freddie can underwrite. Is that a good idea?

WACHTER: Well, I think going forward we’re not going to have a Fannie or a Freddie, so that’s going to be irrelevant. But absolutely going forward we need to have a growing private sector with private capital at risk and in that sense Fannie or Freddie — or whatever is their successor — will have a small role to play, and specifically like FHA for mortgages that are for the affordable sector of the market.

CHIOTAKIS: Susan Wachter, professor of real estate and finance at the University of Pennsylvania Wharton School of Business, thanks for the time.

WACHTER: Thank you.

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